Insights

Why are you not shouting from the rooftops about the value created by your procurement function?

Procurement is generally not given a lot of focus on the C-level agenda, which is a shame as you may be missing out on a unique opportunity to gain a competitive advantage through strengthened relationships with your suppliers and customers.

Procurement, a primary function within supply chain, is commonly thought of as providing operational benefits to a business, such as timely delivery of goods and services and reduction of a product’s cost basis through frequent supplier negotiations. However, your procurement department has the potential to be so much more, and you have an opportunity to create value through extensive supplier cooperation which companies need to exploit and maintain their competitive edge in the future.

The future of supply chain is one of connectivity, transparency, and innovation with procurement representing the gateway. The most successful companies have developed procurement as the value-creating link between suppliers, internal functions and customer needs, thus enabling process optimisation and product innovation in addition to cost benefits:

Suppliers are no longer used only for tactical reasons but add strategic value by leveraging their knowledge to maximise process efficiency and contribute to product design.

Customer pains and needs are considered in the decision-making process throughout the entire supply chain, particularly during product and process development.

To exploit the benefits of procurement, internal business must be connected in cross-functional collaboration and take a holistic approach to business development.

Why are so many companies still unaware of the potential value in procurement?

Procurement has somehow fallen between the cracks. As a result of decentralised business development, lack of competences to exploit market opportunities and manage the possible change process, and the inability to communicate the importance of procurement on a C-level agenda, procurement has generally been undervalued and unrecognised as a lever for business development. A further consequence is that procurement is not considered an attractive career path. When positioned this way in an organisation’s culture and structure, the focus tends to be primarily on cost reduction rather than cross-functional collaboration supported by strategic supply chain management. Value remains unexploited, and the efficiency potential “goes down the drain.”

How to realise the potential

A multifaceted transformation must take place to capture the unrealised potential of your procurement department. From a strategic level, the procurement department should focus on continuously managing supplier relationships and exploiting business development opportunities in addition to extensive upskilling. This requires proper category management that focuses on strategically sourcing supply partners that drive value for the product and eliminate inefficiencies in the value chain.

Furthermore, procurement must learn how to engage key stakeholders within the organisation and internally market the benefits and opportunities that can be realised. In order to participate in the C-level agenda, procurement must understand strategic organisational coordination such as goal setting, stakeholder communication, project planning and execution. Finally, procurement must upgrade the operations model to enhance process efficiency with true valuable impact tracking and incentive structures.

No one said it would be easy

This is by no means an easy transformation. Old habits die hard, but after more than three decades of working with executives in organisations undergoing transformational change, Valcon knows how to help your company:

Change the organisational culture, mindset and skills to get procurement on the cross-functional collaboration agenda

Understand the importance of strong stakeholder management and do it

Make procurement a strong career path – enable possible “internships” in other departments to enhance cross-functional understanding

Structure category management to target the market development and be on top of the category strategy